Private Sector Development (PSD) and Industrial Policy

There is generally broad agreement that a dynamic private sector plays a crucial role in the economic development process. It serves as an engine of investment, innovation, and growth and offers an effective way to create employment, incomes, and prosperity. Hence, private sector development (PSD) has taken on an increasingly prominent role in development thinking and policy.

However, there is a debate on which policies are required to develop a dynamic and inclusive private sector. The debate focuses around the question if a business enabling environment and horizontal/neutral policies are sufficient or if more interventionist industrial policies are required. Industrial policy aims to initiate structural change towards sectors and activities that are more productive and offer higher learning opportunities and externalities. It encompasses policy elements from different policy fields such as education and skill development, infrastructures, trade, investment or competition policy.